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Why SMART Global Holdings Shares Jumped Today

By Evan Niu, CFA – Jul 10, 2019 at 12:10PM

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The memory-chip maker is getting into embedded computing.

What happened

Shares of SMART Global Holdings (SGH 0.06%) have jumped today, up by 17% as of 11:30 a.m. EDT, after the company announced it was expanding into the embedded computing market with a pair of acquisitions. SMART has purchased the embedded computing segment of Artesyn Embedded Technologies, Artesyn Embedded Computing, and Inforce Computing.

So what

SMART is acquiring Artesyn Embedded Computing for $80 million in cash, with another $10 million worth of performance-based consideration to be paid out if the segment hits certain targets in the second half of the year. The company will pay $12 million for Inforce in cash and stock, with Inforce joining SMART's specialty compute and storage solutions (SCSS) division.

Green stock chart going up

Image source: Getty Images.

"These acquisitions represent another milestone in SMART Global's strategy to drive growth and earnings through synergistic M&A," CEO Ajay Shah said in a statement. "These will become part of the SMART Specialty Computing business as the products and customers added are complementary to our existing business, expand SMART's target market opportunity and enable the company to cross sell its existing products to new customers."

Now what

Both transactions are expected to be immediately accretive to earnings per share. SMART's SCSS division serves many end markets, including the defense, Industrial Internet of Things, edge computing, and communications sectors.

Several analysts were bullish about the deals, issuing positive research notes and boosting price targets. Jefferies analyst Natalia Winkler said the deal would help SMART diversify its customer base, and increased her price target from $33 to $37. Needham analyst Rajvindra Gill raised his price target to $40, noting that the larger revenue base would incrementally reduce exposure to "the volatile Brazil segment" as a percentage of total revenue. Stifel Nicolaus similarly increased its price target from $38 to $44.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

SMART Global Holdings, Inc. Stock Quote
SMART Global Holdings, Inc.
SGH
$16.01 (0.06%) $0.01

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